Component |
Description |
Cost of Asset |
The initial cost of acquiring the asset. |
Salvage Value |
The estimated residual value of the asset at the end of its useful life. |
Total Units of Production |
The total number of units the asset is expected to produce over its useful life. |
Units Produced in Period |
The number of units produced by the asset during a specific period. |
Depreciation Expense |
The depreciation expense for the period based on the units of production method. |
Formula |
Depreciation Expense = ((Cost of Asset – Salvage Value) / Total Units of Production) × Units Produced in Period |
Purpose |
Used to allocate the cost of an asset based on its actual usage, providing a more accurate representation of its depreciation. |